Icap fortunes hit by a drop in volatility
ICAP, the world’s largest inter-dealer broker, saw its shares hammered by investors yesterday as fears crystallised over the impact of lower levels of volatility on the group’s business.
Icap said revenue over the first quarter of the financial year rose eight per cent compared to the first three months last year, while profit grew by five per cent.
But the earnings guidance, which was in line with expectations, was offset by a note of caution from chief executive Michael Spencer, who said broking volumes “slowed significantly in June as customers’ and end investors’ risk appetites reduced”.
Extreme volatility in May provided a welcome boost to the company’s voice broking revenues on the foreign exchange and interest rate desks, while the month also saw a continuing good run in the commodities and emerging markets businesses.
However, this was offset by a turnaround in June, which Icap said saw “reduced revenues in almost all asset classes other than commodities and emerging markets”.
“After a good performance at the beginning of the year, credit markets have been quieter and spreads narrower than last year,” it added.
The dampener came as a blow to investors, who had been hoping for a more bullish statement after having been hit in the last financial year by the double whammy of a profit warning and the closure of the group’s struggling cash equities business.
However, Spencer said the group still expects to hit the current range of analyst forecasts for its profit haul in the year to March 2011, between £336m and £360m.
Analysts said yesterday’s 4.6 per cent share price plunge was mostly down to a round of profit-taking after a recent strong run for the stock, which has gained almost half its value since its February low of 294p.